In a setback to Dr Reddy’s Laboratories, a US court has ruled that the company’s generic version of Lunesta, a drug to treat insomnia, would infringe on a patent that expires next year.

The order, which came on an appeal by Sunovion Pharmaceuticals, which makes the sleep aid, reverses a trial court judgment that had granted summary judgment of non-infringement to the Hyderabad-based company. The US Court of Appeals for the Federal Circuit in Washington said the trial judge erred in ruling that Dr Reddy’s version did not infringe the patent. Lunesta (eszopiclone) is the prescription brand to treat insomnia. Shares of Dr Reddy’s fell 1.81% to close at R2,411.40 on the Bombay Stock Exchange on Friday.

Sunovion is a wholly-owned subsidiary of Osaka-based Dainippon Sumitomo Pharma (DSP), which has already reached settlements with other companies over the sleep medicine, including one with Teva Pharmaceuticals. According to Dainippon Sumitomo Pharma, Lunesta generated $136 million in the North America and Chinese markets in the April-June quarter of the current fiscal.

Setting aside an earlier ruling given by a New Jersey Court, the Federal Circuit Court said that the lower court has “erred” in granting summary judgement of non-infringement by Dr Reddy’s. Rather than remanding for further proceedings, the Federal Circuit held that Dr Reddy’s abbreviated new drug application (ANDA) in fact infringes Sunovion’s patent as a matter of law.

“In view of the foregoing, we conclude that the district court’s construction of the asserted claims was correct, but we also conclude that the court erred in granting summary judgement of non-infringement to Dr Reddy’s. Therefore, because Dr Reddy’s ANDA specification infringes claim 1 of Sunovion’s 673 patent as a matter of law, the judgment of the district court is reversed,” the court said in its order.

Sunovion, formerly known as Sepracor, filed its infringement suit in March 2009, targeting 10 generics makers that had filed ANDAs for Lunesta versions.

In January, the New Jersey federal judge observed that Dr Reddy’s did not infringe the patent of the drug belonging to Sunovion, finding that the Indian drug maker’s proposed generic version of the sleep aid is chemically different.

Sunovion argued that the district court erred in concluding that Dr Reddy’s would not infringe by making and selling its product approved by the USFDA. According to the federal court judgment copy, Dr Reddy’s original ANDA specification, submitted to the USFDA on December 15, 2008, requested regulatory approval